In Ancient Rome, centurions received land and a one-off payment when they retired. Photo: Andrejs Pidjass/iStock

Over the past six years superannuation has gone through many changes. Not only did the new simple superannuation system start on July 1, 2007, with sweeping changes including making superannuation tax-free for people aged 60 and over, there have been constant changes made by Labor since they came to power.

The simplification of superannuation in 2007 was necessary due to how complicated superannuation had become since 1983. As a result of the many changes made over the 24 years from 1983 to 2007, there were 12 different types of superannuation. The new system reduced this to just two.

Some of the changes introduced in 1983 were needed because of how many Australians regarded superannuation back then. To understand why the changes were necessary it is important to understand what superannuation is meant to be used for.

Superannuation, or a retirement income stream, is not a new invention. It can trace its ancestry back to ancient Roman times. Rather than receiving an income in retirement, centurions were given land and one-off payments to help them provide for themselves after they had put down their swords.

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The most common form of superannuation through the ages has been a pension paid to military personnel and heroes. Admiral Nelson was awarded a perpetual pension that was paid to him and his descendants until 1951.

Civil servants were the next to receive the benefits of pension schemes, followed by company or employer pension schemes.

The common factor with all historical superannuation systems has been the payment of a pension after a person has retired. The superannuation system that had evolved in Australia was more focused on lump-sum payments.

For many Australians, retirement before 1983 meant accessing their superannuation as a lump sum that was often treated like a Lotto win. In many cases a person took all of their superannuation as a lump sum to pay for overseas holidays, weddings, or things like caravans. This resulted in many retirees having to depend on the age pension to survive.

This attitude to superannuation was encouraged by the tax treatment of lump-sum superannuation payments – only 5 per cent of a lump-sum payout was counted as taxable income.

From 1983, Australians have been encouraged to regard superannuation as a source of income in retirement. This was fostered through more generous taxation benefits for superannuation pensions, rather than lump sums.

Since a superannuation guarantee system was introduced, most Australians have superannuation accounts, rather than a select few that worked for companies with their own superannuation schemes. Despite the growth in the number of Australians with superannuation, the understanding of how superannuation works has not increased.

In simple terms the amount of superannuation a person has when they retire depends on six factors:

1. Compulsory employer contributions;

2. Voluntary or salary sacrifice contributions by individuals, including the self-employed;

3. Non-concessional after-tax contributions;

4. Income earned on investments;

5. Taxes paid on income and contributions; and

6. Fees charged to a member's account for the administration of the fund.

This final factor can be a combination of administration fees charged by the fund, fees charged by investment managers, and commissions paid to financial advisers. The level of fees charged by superannuation funds varies greatly.

Where a person wants to maximise their superannuation, in addition to maximising contributions, they must also reduce the fees charged to their account. The first step in this process is to find out what the current fees and charges they face are. If they appear high, or commissions are paid to an adviser, the next step is to look for a fund with lower fees or one that does not pay commissions. The final step is to roll their superannuation into the new fund.